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Ethics and Compliance in Latin America: a Construction Industry Perspective

By Claudio Graeff, FTI Consulting
Posted: 2nd September 2016 08:21
2016 has been a landmark year for ethics and compliance concerns in Brazil. The so-called “Car Wash” (“Lava Jatos”) scandal surrounding allegedly improper payments made involving Petrobras, the Brazilian state oil company, in exchange for lucrative construction contracts for major refining and distribution facilities, has already resulted in scores of political and business leaders arrests. It has even played a role in the political turmoil surrounding the removal of Dilma Rousseff from her post as President. Furthermore, preparations for the 2016 Rio Olympics were plagued by delays and cost overruns in the construction of several major venues and infrastructure projects, raising questions about the nature of the bidding and construction process. All of this comes on the heels of investigations in several countries into allegations of bribery in connection with the bidding process for the 2014 FIFA World Cup in Brazil, which culminated in the arrest of several top FIFA leaders in Switzerland in May of 2015.
By the time the Car Wash scandal broke last year, Brazil had already put in place the Clean Company Act, a specific legal framework for tackling anti-corruption issues. While the Clean Company Act has been in effect since January of 2014, the first year it was in force many companies had doubts about the seriousness of the law and the strength with which it would actually be enforced. Many compliance programs were implemented for the sake of following the new law as loosely as possible with the intent of creating a mere appearance of compliance without making serious changes. However, the arrests of senior private company executives as a result of the Car Wash scandal have made companies realise the seriousness of the Brazilian government's commitment to enforcing the Clean Company Act and other anti-bribery and anti-corruption laws, and have left few doubts as to the lengths to which they will go in order to do so.
From an international perspective, companies have also had to contend with increased enforcement by regulators outside of Brazil. The United States Department of Justice, in particular, has been very aggressive in pursuing a number of high profile anti-corruption cases over the last few years, including the FIFA bribery allegations. The Department of Justice has also promised more stringent Foreign Corrupt Practices Act (“FCPA”) enforcement against individuals with the publication of the Yates Memo in late 2015. All of this should serve as a wake-up call for multinationals seeking to enter the Brazilian and Latin American construction market, where a multitude of interlocking local, state and federal regulations on labour, legal and tax issues create multiple potential compliance pitfalls. Under these new stricter enforcement standards, one dishonest request from a local official involved in the permitting process has the potential to derail an entire project and put a company at risk for untold financial and reputational damages.
One of the primary mitigation strategies for companies is the need to integrate compliance into all stages of a capital project from the initial negotiations through construction, commissioning and operations. Giving compliance a seat at the table at all times is critical to helping avoid the pitfalls that can arise with the many issues that might disrupt negotiations, including environmental and labour law compliance issues. It means the inclusion of ethics clauses in contracts from the outset of a project, and demonstrates that ethical business practices is of primary concern to all parties and not merely an afterthought. In the construction industry, in particular, there is a great risk that unethical behavior in the initial stages of the procurement process, which may take the form of bribes paid in exchange for contracts as was the case in the Car Wash scandal, will negatively affect the entire project.

FTI Consulting's Construction Solutions and Global Risk & Investigations practices help clients tackle the challenges of ensuring ethical conduct and compliance with the full spectrum of anti-bribery and anti-corruption laws and regulations by ensuring every aspect of their project is properly risk assessed, governed, well-executed and fully supported from beginning to end. Our service offerings include not only the mission-critical project assessment, planning and monitoring services offered by our Construction Solutions practice, but also tools such as FTI Comply, a web-based third party due diligence solution that assists compliance professionals in continuously monitoring and tracking third party risk. With concerns over regulatory action and ethics and compliance risk remaining top of mind for corporate leaders in 2016, we seek to provide our clients with an expanded, holistic view of the risks they face throughout the entire project lifecycle. This means keeping a watchful eye on a dynamic regulatory, legal and political climate that will surely continue to see significant developments throughout the coming year.

Claudio Graeff is Managing Director in the Construction Solutions practice in the Forensic and Litigation Consulting segment of FTI Consulting where he works on advisory consulting for project development, project management and contract management.

His 20 years of experience as senior manager, within the construction industry in energy, infrastructure, mining and petrochemicals, defines strong and extensive experience in feasibility studies, planning management, cost estimate management and cost control for megaprojects.  In additional, Mr. Graeff is considered an expert in important project areas with significant experience in environmental, industrial relations, health and safety, human resources and in community and client relations.
“The views expressed herein are those of the author(s) and not necessarily the views of FTI Consulting, Inc., its management, its subsidiaries, its affiliates, or its other professionals.”

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